London: Institutional investors worldwide are signaling a notable shift in their investment strategies, reducing exposure to U.S.-based hedge funds for the first time since 2023, according to a recent survey conducted by Barclays. The move reflects growing caution toward U.S. markets and an increasing appetite for diversification into Asia and Europe.
The Barclays survey, which included 342 institutional investors managing $7.8 trillion in assets, found that U.S. and European investors are planning to cut their allocations to U.S. hedge funds by approximately 5 percent. Simultaneously, these investors intend to boost their investments in hedge fund managers based in Asia and Europe. Interest in Asia-Pacific hedge funds has more than doubled since 2024, while European-based hedge funds have seen a twofold increase in attention from U.S. investors. European investors themselves reported an 8 percent rise in willingness to allocate capital to local managers, signaling confidence in regional markets.
Despite this geographic shift, hedge funds remain costly. Survey respondents noted that average management and performance fees for traditional hedge fund products peaked in 2025. However, funds that pass expenses directly to investors have seen a relative decline in costs. Barclays reported that investors’ share of gross hedge fund returns rose from 47 percent in 2023 to 56 percent in 2025, and overall hedge fund returns increased by around 5 percent during the year.
The data also highlighted trends in fund strategies. While multi-manager hedge funds continue to dominate the industry with assets growing at a steady 17 percent annually since 2017 to $435 billion, they were not the preferred choice for new allocations. Investors showed stronger interest in strategies driven by macroeconomic factors and systematic stock trading. Looking ahead to 2026, the Equity Market Neutral strategy emerged as the most favored, followed by Quant Multi-Strategy, which has been a top choice since 2020.
Overall, the hedge fund sector experienced significant growth, expanding by just over a fifth between 2023 and 2025, marking the largest two-year increase since the 2011–2013 period. Analysts interpret this trend as part of a broader global recalibration, with institutional investors seeking more geographically diverse and strategically flexible portfolios amid evolving market conditions.